CCC

Prepared by Core Capital Consulting KK

2013 June

A Distinguished Global business solution partner connecting you through Asia

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3

Other

wholesale

18.3%

Finance

8.6%

Consulting

3.3%

Non-

manufacturing

15.9%

Chemical

4.2%

Electronic

equipment

3.5%

General

machinery

3.5%

Other

manufacturing

11.4%

Transportation

3.1%

Information

system

and software

10.9%

Machinery

wholesale

6.1%

Electronic

equipment

wholesale

6.4%

Precision

instruments

wholesale

4.7%

1.1 Statistical Data In 2009

Source: Gaishikei Kigyo Soran 2008, Published by Toyo Keizai

67.0%

13.8%

6.2%

12.9%

100%

50% ~ 100%

50%

~ 50%

Non-manufacturing

77.4%

Manufacturing

22.6%

U.S.A

43.2%

Canada, 1.2%

Germany

11.7%

UK, 7.2% France,6.7%

Swiss, 4.4%

Netherlands,

2.5%

Italy, 1.9%

Other

European, 6.4%

South Korea,

4.8%

China (&HK),

3.5%

Other Asian,

4.8% Australia, 0.9% Other, 0.8%

North America

44.4% Europe

40.7%

Asia 13.2%

Others 1.7%

Investigation targets: 3311 foreign affiliate (NOT all the foreign affiliate) in Japan

Remarkable Changes

- Number of Asian parent companies has made 0.8 point raise up since last year, now occupying 13.2%. ( Namely China, Hong Kong, North Korea, Singapore, India)

Distribution of Foreign Affiliates by Industry

Foreign Capital Ratio

Nationalities of Parent Company

BO

Parent Company wants minimal bureaucracy

Less burden in establishing (disbursement,

timeframe, required docs, etc) + running (as do

not require share holder decision making

processes from the compliance formality

perspective)

Lower Credibility in Japan upon doing

business

Liability transferred to HQ

Tax can be inflated. Branch and the foreign

company from which it extends are treated as

the same entity for Japanese tax purposes and

therefore, in general, a branch cannot

recognize internal profits and losses from

transactions with its head office or other

branches of the same head office

1.2 Comparison of Branch Office and Kabushikaisya

KK

Independent Legal Entity

High credibility,

Can get tax reduction better than BO

(Blue Return System – Loss carry forward)

Higher possibility to fund raising from banks or

other 3rd party investors under the higher

credibility

Limited liability up to the paid-in-capital

Cost of disbursement for establishment

Overall high running cost comparatively

Statutorily more complicated than BO

Identity

Pros

Cons

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1.3 Requirements to Incorporate Branch office or Local corporation

Branch Office Local corporation (KK, GK, etc)

Restrictions on equity participation Notification must be filed with the Bank of

Japan Notification must be filed with the Bank of Japan

Capitalization No capital More than 1 Japanese yen

Number of investors N/A At least one shareholder

Liability of equity

participants/parent company toward

creditors

Unlimited Limited to amount of equity participation

# of executives required

Representative in Japan: Can have 1 or

more

*At least one representative MUST have

an address in and be resident in Japan.

Under New Corporation Law: Can have 1 or more

*At least one representative MUST have an

address in and be resident in Japan

Legally stipulated term of office for

registration No legally stipulated term

Freely determined up to 10 years for directors

Up to 4years (until the end of fiscal year) for

auditors

General meeting of shareholders Not required Must be held at least once a year

Fiscal Year End (FYE) FYE must be in alignment with the HQ FYE can be set at any date as desired(less than

12months)

Corporate Income taxation As per the amount of taxable income

As per the amount of taxable income and

reduced tax rate applicable for small companies

depending on the shared capital amount

Local Business taxation

As per the Head office company’s capital

amount, some part of the Business tax

amount is determined.

Allocated according to equity participation ratio

after the taxation

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Preliminary investigating matters related to incorporation

Preliminary investigating matters related to incorporation

7

BO KK

Notification of BO establishment to the Bank of Japan

Opening of bank account under BO name

Acquisition of certificate on registered information

Application to Legal Affairs Bureau for registration

Certification of affidavit by embassy/consulate in Japan

Preparation of affidavit

Establishment of BO ( date of BO establishment is at the BO’s discretion)

Examination at the Legal Affairs Bureau of similar corporate names

Determination of branch office information to be registered

Embassy/Consulat

e

Legal Affairs Bureau

Bank

The Bank of Japan

Notification of KK to the Bank of Japan

Opening of bank account under company name

Acquisition of certificate on registered information and company seal registration

certificate

Application to the Legal Affairs Bureau for registration of KK

Examination by directors and auditors of legality of establishment procedures

Appointment of directors and other officers, i.e. Rep directors and auditors

Remittance of KK capital to special bank account

Application to bank for capital custody and issue of capital custody certificate

Notarization of KK’s AOI by Japanese notary public

Acquisition of registration certificates, etc.

Preparation of KK’s articles of incorporation

Examination at the Legal Affairs Bureau of similar corporate names

Determination of profile of KK

Internal

Notary Public

Legal Affairs Bureau

Bank

The Bank of Japan

Source: JETRO & “Commercial Registration Forms” published by Nippon Hourei KK

Internal 60D

61D

64D

62D

68D

30D

33D

34D

70D

Complete

Complete 36D

2.1 Flowchart to Incorporate BO/KK

8

2.2 Taxes in Japan

BO

- HQ is responsible for debts & revenue.

- BO is subject to tax on all Japanese source income or domestic source income attributable to Permanent Establishment (PE) based on a tax treaty and must file a tax return.

- Tax may be calculated upon PARENT COMPANY’S CAPITALIZATION. Branch and the foreign company from which it extends are treated as the same entity for Japanese tax purposes and therefore, in general, a branch cannot recognize internal profits and losses from transactions with its head office or other branches of the same head office.

KK

- KK is responsible for debts & revenue.

Types of Taxes in Japan

- Corporate Tax, Enterprise Tax, Corporate Inhabitant Tax (Per Capita Rate and Corporation Tax Rate) and Consumption Tax

Japan (Tokyo) USA(CA) France Germany China Korea (Seoul) UK Singapore

Provincial 12% 9% 0% 14% 0% 2% 0% 0%

National 24% 32% 33% 16% 25% 22% 24% 17%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Rat

e

Corporate Income Tax Comparison (as of 2012 April)

2.3 Tax rates comparison